Two weeks ago, a few Capital insiders were telling me that Governor Schwarzenegger’s health care reform proposal was not going to happen this year.  The governor’s staff said otherwise.  If I were a betting woman, I’d put my money on the governor–he put his stake in the ground to achieve major reform on health care in 2007 and that’s what he’s going to do. 

But I know that I’m not going to like it.

First off, the governor is intent on putting a mandate on businesses to pay a 4 percent payroll tax (yes, it is a tax, not a fee) if they don’t provide insurance to their employees.  Last week at a town hall in San Diego, the chairman of the San Diego County Hispanic Chamber of Commerce questioned how small businesses could afford such a tax.  According to the San Diego Tribune, Schwarzenegger defended his mandate on businesses, arguing that the financial burden must be shared by all affected parties—business, employees, doctors and insurance companies. 

He may not want to acknowledge it, but make no mistake, there will be companies who cannot stay in business or will not expand their job base because of the cost of the health care tax.  They won’t be Steve Burd’s Safeway stores or Kaiser Permanente medical offices—businesses of those size spend more in the neighborhood of 7 percent of their payroll costs on health care.  A 4 percent payroll tax doesn’t affect them.  (Not to mention that a universal health care program would level the playing field for large employers and take the issue of health care off the bargaining table for those with unionized employees.)

But a 4 percent payroll tax is a big deal to the companies who aren’t providing health care now. 

“Those who don’t provide it haven’t been providing it for a very simple reason. They can’t afford it,” says Michael Shaw, legislative director of the California Chapter of the National Federation of Independent Business. (Side note:  Shaw’s new boss is John Kabateck, who left the governor’s office to run the small business organization.  He may find himself as a plaintiff against his former boss if the employer mandate is pushed through.)

While the governor was out on the road, the Democrats finally owned up to who would pay for their health care proposal.  No surprise there–employers will pay for more than half of the cost of their big government plan.  (The Democrats’ "play or pay" tax would be 7.5 percent of payroll if the business doesn’t provide insurance.)

With the Democrats so far to the left and a coalition of big businesses giving the governor cover, I will not be surprised to see a "compromise" between the governor’s plan and the Democrat’s plan come together in the late days of the legislative session.   But I wouldn’t expect it to reflect much of what legislative Republicans and small business owners want.

So far, the Democrats don’t seem inclined–or to be getting any pressure from the Governor’s Office–to negotiate with their Republican colleagues.  On Monday, Assembly Democrats killed three GOP health care reform bills, two dealing with health savings accounts (AB 84 and AB 245) and one that would have made all out-of-pocket health care expenses, including insurance premiums, tax deductible (AB 1040). The Democrats see any need to negotiate with Assemblyman Mike Villines or  Senator Dick Ackerman; they’ve had much better luck with their policy agenda when they negotiate with the governor.

The Assembly Republicans are troubled by the price tag of the proposal, saying that it amounts to a $12 billion tax hike.  The governor contends that everyone needs to feel the pain of health care reform.  But is now the time to put yet another financial burden on California businesses?  Our economy has faltered and it is unclear whether we’re on the way towards a serious slowdown or whether things will turn around. 

The governor can’t afford an economic slowdown.  According to the Legislative Analyst’s Office, state expenditures would exceed revenues by more than $3 billion in 2007-08 if the Governor’s revised budget were enacted as proposed. The LAO also predicts that the budget shortfall would then grow to more than $5 billion in 2008-09.   

Without serious structural reform of the budget (and deep cuts in spending), the governor is going to need a strong economy to get him through the next few years of budgets without facing a major deficit.  However, piling more financial burdens on California employers is not the path to building a strong and prosperous economy. 

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This entry was posted on Wednesday, May 23rd, 2007 at 12:00 am and is filed under Blog Posts.